First of all: I really like the program, just looked at it briefly, but looks very nice. I want to test the capturing to see if it's better than my Pinnacle PCTV Vision program (somehow that program keeps crashing when I push the record button).

For XviD Video Codec :
The latest version of this codec has by default some debug window activated.
In order to disable it while recording, go to XviD Codec Settings->Advanced Settings...->Debug and disable "Display encoding status" and save the changes.

Why AVI files not editable sometimes?
This is because video editing operating with frames. Compressed video (Let's take MPEG, for example) do not contain frames but difference between them. To start finding difference codec uses ordinal frame - key frame. If you choose non-destructive editing in your editor it will only operate with key frames. Normally, in compressed video, key frames appear only in completely new scene (100% different from previous image). After that, codec will store only newly appeared parts of the image plus moving paths of the present parts until new completely different image will found - it will be next key frame. If you place search mark, or select fragment in non-destructive editing mode, editor uses nearest key frame. If you want to make your video more "editable" or "searcheable" (video players also use key frames for positioning) you can force codec to make key every n frames or seconds.

Windows Media must suite your needs (it is produce low detailed picture - but you can't see details on high motion anyway, and it is highly compessable). If you prefer low resolutions - DivX set to constant bitrate.